Question

Quantitative Problem: You are given the following probability distribution for CHC Enterprises:

State of Economy Probability Rate of return

Strong 0.15 20%

Normal 0.5 9

Weak 0.35 -4

What is the stock's expected return? Round your answer to 2 decimal places. Do not round intermediate calculations. 6.10 %

What is the stock's standard deviation? Round your answer to two decimal places. Do not round intermediate calculations. %

What is the stock's coefficient of variation? Round your answer to two decimal places. Do not round intermediate calculations.

Answer 1

Expected return=Respective return*Respective probability

=(0.15*20)+(0.5*9)+(0.35*-4)

=6.1%

probability	Return	probability*(Return-Expected Return)^2
0.15	20	0.15*(20-6.1)^2=28.9815
0.5	9	0.5*(9-6.1)^2=4.205
0.35	-4	0.35*(-4-6.1)^2=35.7035
		Total=68.89%

Standard deviation=[Total probability*(Return-Expected Return)^2/Total probability]^(1/2)

=(68.89)^(1/2)

=8.3%

Coefficient of variation=Standard deviation/Expected return

=8.3/6.1

=1.36(Approx)